Getting a job in private equity behind the scenes insight into how private equity funds hire

GETTING A JOB IN

PRIVATE
EQUITY
BEHIND-THE-SCENES INSIGHT INTO
HOW PRIVATE EQUITY FIRMS HIRE

BRIAN KORB AND AARON FINKEL

John Wiley & Sons, Inc.

ffirs.indd i

9/16/08 9:46:08 AM


ftoc.indd iv

9/16/08 5:30:06 PM


GETTING A JOB IN

PRIVATE
EQUITY
BEHIND-THE-SCENES INSIGHT INTO
HOW PRIVATE EQUITY FIRMS HIRE

BRIAN KORB AND AARON FINKEL

John Wiley & Sons, Inc.

ffirs.indd i

9/16/08 9:46:08 AM


Copyright © 2009 by Glocap Search LLC. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United
States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the
appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400,
fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the
Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or
online at />Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they
make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by
sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation.
You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or
any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department
within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in
electronic books. For more information about Wiley products, visit our web site at www.wiley.com.
ISBN-13 978-0-470-29262-4
Printed in the United States of America
10

ffirs.indd ii

9

8

7

6

5

4

3

2

1

9/16/08 9:46:09 AM


CONTENTS
Preface

v

Acknowledgments

viii

About the Authors

ix

Chapter I

Getting Started

1

Chapter II

Out of Undergrad

19

Chapter III

Pre-MBA

25

Chapter IV

Out of Business School

59

Chapter V

Post Graduate School: Experienced Deal/Advisory Professionals

89

Chapter VI

Post Graduate School: Experienced Non-Deal/Advisory Professionals

97

Chapter VII

Breaking into Venture Capital

103

Chapter VIII

Working at Fund of Funds, Hybrid Funds & Secondary Funds

129

Chapter IX

Finding the Right Fit

145

Chapter X

The Resume

155

Chapter XI

The Interview

161

Chapter XII

Compensation

177

Chapter XIII

Working with a Recruiter

181

Chapter XIV

On the Job: What to Expect

185

Appendix A

Resources

193

Appendix B

Sample Resumes

199

iii

ftoc.indd iii

9/16/08 5:30:05 PM


ftoc.indd iv

9/16/08 5:30:06 PM


PREFACE
When we sat down to write this guide, our goal was to paint an accurate picture of
career prospects in the private equity industry. We wanted to excite candidates about
the industry and encourage them to pursue their dream job. At the same time, however, we didn’t want to give anyone false hopes. For most, finding a position in private
equity will be difficult, as the number of candidates pursuing private equity opportunities has always far outpaced the number of available positions.
Perhaps never before has the private equity profession wielded such power or played

as important a role in the financial markets as it does at present. The appeal of working in the industry is obvious: Private equity is about investing millions (sometimes
billions) of dollars into companies and helping determine their fate by exerting influence on operations and strategy, and in today’s market that includes some of the most
prominent companies in the world. Private equity investors work with companies
from the initial investment to the time they are taken public or sold. They are passionate about investing and have the ability to create tremendous value.
If you’ve already looked into getting a position at a private equity fund, you may
have been warned that the challenge could be daunting and the competition fierce.
This guide will give you a better understanding of the career path in private equity and
how the hiring process works. However, we do not profess to offer surefire, can’t-miss
strategies for securing a position, because there simply aren’t any! Remember, too, as
in other industries, there can be timing issues and natural business cycles that are out
of your control. Instead, our aim is to give you insight into the elements that are in
your control so you can put your best foot forward during your pursuit of a job. This
guide also does not take a textbook look at private equity, give a detailed history of the
industry, or explain how funds are raised and deals are done. You can get that information from many other sources (some of which are listed in Appendix A).
We segment candidates seeking positions in private equity by where they are in
their professional careers, and thus we have chapters on the most common entry
points: out of undergrad, pre-MBA (which, as you will see, often means being hired
out of an investment banking or consulting analyst program as these are typical initial
feeders into private equity jobs), from business school and postgraduate school. We
devote a separate chapter to venture capital (earlier-stage investing) because the skill
sets that venture funds look for, the timing of the opportunities to break in, and the
career track can all differ significantly from later-stage private equity funds. There is
v

fpref.indd v

9/16/08 9:49:51 AM


vi Preface

also a chapter on private equity fund of funds, hybrid funds, and secondary funds, as
those run slightly different recruiting processes and hire different types of candidates.
This guide focuses primarily on junior and senior (non-partner) roles at mid- and
later-stage private equity and leveraged buyout (LBO) funds. When we use the traditional term private equity (PE), we are referring to the entire spectrum of early- to
later-stage investing. When discussing a specific portion of the market, for example
venture capital or buyouts, we will note it by name.
Most candidates target a long-term career in private equity by following what we
call the traditional path, which starts early in their career. We also call this the 2-2-2
route because it usually involves spending two years in an analyst training program
(usually investment banking or consulting), followed by two years in a private equity
firm and then two years in business school before securing a career-track opportunity.
As you read this guide, you will learn that it is increasingly difficult to enter the process later in your career to make up for missed experiences. If you didn’t land in an
investment banking or consulting analyst program after graduating from college, it
will be more difficult to secure a pre-MBA position at a PE/LBO fund; and if you wake
up one day in business school (or several years later) and have an epiphany that PE
investing is your true calling but you lack prior PE experience, the battle is likely to
be even more challenging.
We will outline the traditional path and refer to it throughout this guide, but it is
not the only way to get into PE. There are those who break in via other ways, and we
make certain to give attention to them as well.

REAL-LIFE STORIES
As recruiters who specialize in private equity, we are well-positioned to offer career
advice: We know what the hiring firms demand and we are intimately aware of the
experiences of candidates who have successfully found positions. Thus, in addition to
our own guidance, we believe a great way for you to really get a grasp of the private
equity search process is to read insight from those on both sides of the equation who
have experienced it firsthand. For the hiring firms, we include insight (Insider Tips)
throughout the book from PE professionals, some of whom are in positions where they
make hiring decisions.

On the candidate side, we have firsthand accounts (case studies) of 36 individuals
who went through the search process, and we have included resumes from 15 of them.
The experiences outlined in the case studies run the gamut from those who broke into
PE the more traditional way to those who lacked the usual requirements but were still
able to secure a position in a less traditional way. We have case studies from pre-MBAs,
current MBAs, and professionals up to several years out of graduate school. What the
authors of all the case studies have in common is that they were top performers and high
achievers both academically and professionally and had a burning desire to succeed.

fpref.indd vi

9/16/08 9:49:52 AM


Preface

vii

By reading the case studies you will quickly see that, in most instances, to secure
a position in private equity you must be willing to commit early, put in the work, get
the best education/training, and do whatever else it takes to excel—and that’s true
whether you eventually break in via the traditional or nontraditional path. Are we
saying that many of our readers will find a position without the traditional background? No, but if you follow the advice of those who were the exceptions, and if
you, too, have a stellar reputation and are willing to work hard, you can improve your
chances of being an exception as well.
We believe the competitiveness, intensity, pace, and even the potential for compensation in the private equity industry parallels the sports world; therefore, at times
we use professional sports analogies to describe various aspects of the job market. In
fact, sports terms are commonly used by private equity professionals, so you may find
being familiar with them a useful asset going forward. For example, funds hiring at the
more senior level may tell us they are looking for someone who can quarterback a deal.

When targeting junior level staff, the same funds say they want people who can block
and tackle for their deal teams. Mid-market funds often want utility fielders who can
take on many roles, given that they are smaller, less structured organizations.
We view the process of finding a position in private equity as similar to that of
reaching the pinnacle of professional sports; thus, as someone striving to make it, we
think you should tackle your search in a similar way as someone training to be a
pro athlete. Think of working in private equity as the major leagues. To succeed in
either athletics or private equity you need to have a high level of natural ability and
work overtime to make up for areas in which you are deficient. In baseball, if a pitcher
can’t throw a 90-mile-per-hour fastball he will have a tough time making it to the
majors. And even if he can throw 90 mph, there is no guarantee he will make it. You
may have everything that it takes to eventually work in private equity, but for a variety of reasons could still find yourself on the short end of the stick. We hope this guide
will also help you reduce the chances of that happening to you.
If you want to be a big earner and a superstar in this industry, you are going to have
to do the work to get there—but you will have to do the right work. Anyone can
work hard. Getting ahead in PE is about working smarter and getting on track early.
We wish you luck!

fpref.indd vii

9/16/08 9:49:52 AM


ACKNOWLEDGMENTS
T

he authors would like to acknowledge the following members of Glocap’s
Executive Search team who were instrumental in helping put this book together:
Joanna Albright, Pamela Harrington, Katherine Sorensen, and Sarah Woods. We
would also like to thank the many industry executives whose views (though anonymous) we believe will provide readers with unique insight into the private equity hiring process; and we thank the authors of the case studies, who shared with us their

stories of how they secured positions in private equity.

viii

flast.indd viii

9/16/08 9:53:03 AM


ABOUT THE AUTHORS
Brian Korb is a co-founder of Glocap and is the head of the private equity practice.
Brian also oversees several aspects of the Executive Recruiting division and personally
focuses on placing experienced principal and partner-level investment professionals
into venture capital and LBO funds. From his experience over the past decade covering the private equity industry, Brian has developed a deep insight on emerging compensation and hiring trends, and he is frequently quoted in industry publications and
mainstream media. In addition to this book, Brian oversees Glocap’s annual Private
Equity Compensation Report.
Before joining Glocap, Brian worked at Deutsche Morgan Grenfell, focusing mainly
on corporate finance transactions. He graduated with a B.S. in economics from The
Wharton School with concentrations in finance and accounting.
Aaron Finkel is vice president and head of publications at Glocap. In addition to
coauthoring this book, Aaron coauthored Glocap’s Guide to Getting a Job in Hedge
Funds. He also coordinates the research, analysis, and production of Glocap’s annual
Private Equity and Hedge Fund Compensation Reports and handles all media relations.
Aaron has over 17 years of experience in financial journalism, 11 years of which were
spent at Institutional Investor’s newsletters, where he worked as a reporter, editor, and
publisher. Aaron has covered various topics throughout his career, including emerging
markets, corporate finance, and asset management. Prior to his time at Institutional
Investor, Aaron lived and worked in Venezuela for five years. He is a graduate of
Brandeis University.
Glocap Search () is an executive search firm focused on the

alternative asset industry and has a global practice placing investment professionals at
all levels, from general partners to analysts, into private equity funds. It also has substantial practices placing CFOs, controllers, and COOs, as well as admin/support, IT,
and marketing professionals, into these same funds.
With over 100 recruiters and offices in the United States and abroad, Glocap is
one of the leading search firms serving the alternative asset community. Glocap’s
dedicated, specialized teams of search consultants have all worked in the industry
into which they place or from which they draw their candidates and have similar

ix

flast.indd ix

9/16/08 9:53:03 AM


x About The Authors
educational pedigree. This insider position, and the level of knowledge that comes
with it, gives us the ability to work in close partnership with clients to understand in
depth their needs, culture, and internal processes. In many cases, in addition to placing professionals for our clients, we act as a trusted adviser on compensation trends,
optimal organizational structure, and competitive landscape.

flast.indd x

9/16/08 9:53:03 AM


Chapter I

GETTING STARTED
The private equity market has gone through a major transformation

over the past two decades, with many of the most dramatic changes
occurring over the past few years. As you are likely aware, you are
attempting to enter one of the highest profile sectors of the financial
markets—one that is wielding significant influence on the economy
while at the same time creating great wealth for its investors. The
wealth that has been amassed has played a significant role in increasing the attractiveness of the sector and thereby further fueling the
competitive environment to enter. This chapter begins with a brief
overview of the current state of the private equity market giving particular attention to how recent changes have affected hiring. It also
provides a basic introduction to private equity.

THE MARKET TODAY
Notwithstanding the 2008 credit crunch and general market turbulence, it’s safe to
say that today’s private equity (PE) industry is still a major force in the financial world
and that it bears little resemblance to the fledgling market of nearly 30 years ago when
there were just a few practitioners. Perhaps nowhere is the magnitude of the industry more apparent than in the size of today’s buyout funds. In 1980, Kohlberg Kravis
Roberts & Co. (KKR) ran the world’s largest buyout fund at $135 million. In today’s
buyout world, in which firms compete to one-up each other, $1 billion funds are commonplace and the $20 billion barrier has been broken.
The clout of individual PE firms was pointed out in more detail in a November
2004 article in the Economist titled “The New Kings of Capitalism.” The article
pointed out that The Blackstone Group alone had equity stakes in about 40 portfolio companies which, combined, had over 300,000 employees and annual revenue
1

c01.indd 1

9/16/08 5:32:06 PM


2 Getting a Job in Private Equity
of more than $50 billion. If they were a single unit, the holdings would have made
Blackstone one of the top 20 Fortune 500 firms.

In the same article, the Economist noted that in 2004, Texas Pacific Group’s portfolio
companies had over 255,000 employees and revenue of $41 billion, while The Carlyle
Group’s portfolio companies had 150,000 employees and revenue of $31 billion. With
their recent deals, the portfolios of Blackstone, Texas Pacific Group (TPG), and Carlyle
are even bigger and, along with Apollo Advisors LP, Bain Capital, Kohlberg Kravis
Roberts & Co. (KKR), Warburg Pincus LLC, and others, are part of an elite group of
funds that oversee billions of dollars of capital. Table 1.1 lists the largest PE-backed
leveraged buyouts (LBOs) ever, in which many of these firms were participants. These
funds are pioneers of the industry, and anyone looking to break into private equity must

Table 1.1 Ten Largest Closed PE-Backed LBOs

RANK FIRM NAME

TARGET

VALUE
($ BILLION) SECTOR

CLOSING DATE

1

Kohlberg Kravis Roberts & TXU Corp.
Co/TPG/Goldman Sachs

$44.30

Utilities

Oct-07

2

The Blackstone Group

Equity Office
Properties
Trust

$37.70

Real estate

Feb-07

3

Bain Capital/Kohlberg
Kravis Roberts &
Co./Merrill Lynch Global
Private Equity

HCA Inc.

$32.10

Hospitals

Nov-06

4

Kohlberg Kravis
Roberts & Co.

RJR Nabisco
Inc.

$30.20

Consumer
products

Apr-89

5

Goldman Sachs/Carlyle
Group/Riverstone/AIG
Management

Kinder
Morgan Inc.

$27.50

Energy

May-07

6

Kohlberg Kravis
Roberts & Co.

First Data
Corp.

$27.00

Data processing

Sep-07

7

TPG/Goldman Sachs

Alltel Corp.

$26.90

Telecom

Nov-07

8

The Blackstone Group

Hilton Hotels
Corp.

$26.70

Hotels

Oct-07

9

Kohlberg Kravis Roberts & Alliance
Co./Management
Boots PLC

$19.40

Drug stores

Jun-07

The Blackstone Group/
Carlyle Group/Permira/
Texas Pacific Group

$17.50

Semiconductors Dec-06

10

Freescale
Semiconductor Inc.

Source: Thomson Financial’s Buyouts magazine. Data accurate as of December 31, 2007

c01.indd 2

9/16/08 5:32:08 PM


Getting Started

3

be familiar with them and the impact they have on the market. Many of these large
funds have also diversified their activities. In addition to its LBO funds, Blackstone
manages mezzanine, real estate, hedge funds, and private equity fund of funds. Carlyle
runs leveraged finance, buyout, venture and growth capital, and real estate funds.
Private equity’s higher profile has also put the industry under an additional
spotlight—that of government regulators which have been scrutinizing tax issues,
governance, and reporting, among other things. Although the large funds get a lot
of attention, there are still many smaller PE funds impacting the market, and it is not
uncommon to find one run by just a handful of investment professionals that are successful in their own right.
Despite the slowdown of 2008, the private equity market remains stronger by
many measures than it has ever been. Indeed, up until 2008, the industry was enjoying one of its most dynamic periods, with unprecedented growth in assets and
a surge in overall prominence; 2007 was a banner year, with U.S. buyout funds
raising a record $228 billion, 29 percent more than the previous mark of $177.1
billion set in 2006, according to Private Equity Analyst data. Venture capital and

fund of funds have also been attracting new money. In 2007 firms in those two
asset classes brought in $32.2 billion and $26.3 billion, respectively, representing
increases of 19 percent and 20 percent over 2006. Figure 1.1 presents a breakdown
of annual fund-raising by buyout, venture capital (VC) and fund of funds.
Another indication of the prominence of the private equity industry is the wellknown business leaders, celebrities, and former politicians who have joined its ranks,
including Jack Welch (Clayton, Dubilier & Rice), Lou Gerstner and Arthur Levitt
(Carlyle), the U2 rocker Bono (Elevation Partners), former senator Bill Frist (Cressey
& Company), and former U.S. Treasury Secretary Paul O’Neill (Blackstone). Al Gore
is also a partner at venture capital firm Kleiner Perkins Caufield & Byers. Table 1.2
lists the most active VC investors of 2007.
300

Buyouts
Venture Capital
Fund of Funds

250

26.3
32.2
22

($ Billion)

200

27

10.3
22.5

150

5.8

8.5

8.5

6.7

74

100
50

12.5
21

16.6

43.1

79.7
43.8

17.6
112.6

11.3

57.5

228
177.1

39.7

49.1

14.3
61.1

18.2
26.5

42.6

9.5
29.6

61.3

2002

2003

2004

0
1997

1998

1999

2000

2001

2005

2006

2007

Figure 1.1 Private Equity Fund-Raising, 1997–2007
Source: Private Equity Analyst

c01.indd 3

9/16/08 5:32:09 PM


4 Getting a Job in Private Equity

Table 1.2

2007
RANK

Top 25 Most Active Venture Capital Investors of 2007

FIRM NAME

NUMBER OF
DEALS 2007

NUMBER OF
DEALS 2006

1

Draper Fisher Jurvetson (Draper Associates)

129

99

2

Intel Capital

112

108

3

New Enterprise Associates

105

93

4

Atlas Venture, Ltd.

103

81

5

Warburg Pincus LLC

89

80

6

Polaris Venture Partners

74

69

7

Accel Partners

71

55

8

Sequoia Capital

71

82

9

Kleiner Perkins Caufield & Byers

70

80

10

Menlo Ventures

67

41

11

U.S. Venture Partners

67

76

12

The Carlyle Group

66

99

13

Highland Capital Partners, LLC

65

48

14

Oak Investment Partners

62

86

15

Foundation Capital

60

46

16

Alta Partners

58

42

17

Bessemer Venture Partners

58

44

18

Canaan Partners

58

46

19

Austin Ventures, L.P.

57

61

20

InterWest Partners

57

50

21

Benchmark Capital

56

54

22

Venrock Associates

56

57

23

3i Group PLC

53

75

24

Trident Capital

53

39

25

Domain Associates, LLC

52

35

Source: Thomson Financial’s Venture Capital Journal

A Global Market
Over the past several years the private equity market has continued to grow into a
global industry, both in terms of where funds are investing and in the profile of the
Limited Partners (LPs). Pools of capital have also become more sophisticated, with
PE firms adding new asset classes to their stable of investment vehicles (some added
fixed-income, hedge fund, and other products). Underscoring the maturation of the
industry, one firm (Blackstone) led a groundbreaking initial public offering and others
are expected to follow suit.

c01.indd 4

9/16/08 5:32:09 PM


Getting Started

5

There are large global firms that oversee investments in many different countries, and major firms such as Advent International, Apax Partners, Bain Capital,
Blackstone, Carlyle, KKR, TPG, and Warburg have offices outside of the United
States to monitor those investments and to source new ones. While companies in
China and India continue to attract significant interest, funds are also investing in
companies in other emerging regions including Eastern Europe (specifically Russia),
other areas of Asia (Vietnam has seen strong growth), the Middle East and Latin
America (Brazil, in particular). Many well-known firms have launched new funds specifically to invest in many of these countries.
Sovereign investment funds, which invest the capital of non-U.S. governments,
are expected to continue to invest in U.S.-based private equity funds as they look for
higher rates of return than can typically be made by investing directly in stocks and

bonds. One noteworthy example is GIC Special Investments, which manages private
equity investments for the government of Singapore and has been a longtime investor
in KKR. In fact, a report by McKinsey & Co. estimated that through 2012, sovereign
funds in oil-exporting countries alone would invest about $300 billion in alternative
assets, a figure that is about equal to the amount raised by all U.S. PE firms in 2007,
according to PE Analyst. The same McKinsey report notes that the Abu Dhabi
Investment Authority earmarks 10 percent of its $875 billion for private equity. In
addition to being investors, some sovereign funds have become owners of PE funds.
Most notably, the China Investment Corp. paid $3 billion for a 10 percent stake in
Blackstone, the Mubadala Development Corp. (Abu Dhabi) paid $1.35 billion for a
7.5 percent piece of the Carlyle Group, and the Abu Dhabi Investment Authority
bought 9 percent of Apollo Management LP.
Not to be outdone by their foreign counterparts, U.S. institutions are still major
players, with the California Public Employees’ Retirement System (CalPERs) and the
California State Teacher’s Retirement System (CalSTRS) being two of the largest. As
of February 29, 2008, CalPERs had $241.7 billion in assets, of which $22.8 billion was
in private equity, while CalSTRS had committed $12.7 billion of its $171.9 billion
to PE. Other major investors include the Canada Pension Plan Investment Board,
the New Mexico Public Employees’ Retirement Fund, the New York State Teachers’
Retirement System, the Oregon Investment Council, the Pennsylvania State
Employees’ Retirement System, Teachers’ Retirement System of Illinois, the Teacher
Retirement System of Texas, and the Washington State Investment Board. University
endowments, including those run by Harvard and Yale, have been consistent investors in PE funds. Newcomers such as the Kentucky Retirement Systems and the New
Jersey State Investment Council made recent investments.

Employment Scene
It’s not surprising that as the size and scope of private equity funds have expanded
over the years, so, too, have their hiring habits. Although we’ve seen some effects

c01.indd 5

9/16/08 5:32:10 PM


6 Getting a Job in Private Equity
from recent market turbulence, the pace of hiring and the corresponding demand for
highly capable professionals remains strong. In any given year, we continue to see
many firms bringing on multiple new hires.
As recruiters, we analyze the hiring market in terms of supply and demand—the
supply of candidates looking for jobs versus the demand from firms looking to hire.
Although in private equity the demand never technically exceeds the supply (meaning there are always more qualified candidates seeking positions), on an absolute basis
there are more positions available in the past few years than ever before. And even on
a relative basis, the competitive environment has shown improvement, particularly
for pre-MBAs finishing their investment banking and consulting programs and for
graduating MBAs. A lot of the improvement is due to the spectacular fund-raising in
2006 and 2007, which, has led to the need for more investment professionals to help
put the money to work.
Looking at how the private equity market has evolved over the past decade gives further evidence that the overall hiring has not matched one-for-one the capital that has
been raised. Table 1.3 shows that over the past 13 years the amount of capital under
management has increased by more than six times, the number of professionals working in the industry has nearly tripled, and thus the amount of capital per professional
has increased over time (it would be incorrect to conclude that the industry is severely
understaffed, but it probably means there is some room for growth). In terms of geography, New York City is far and away home to the largest private equity workforce, according to the 2008 Global Private Equity Review published by Private Equity Intelligence.
Following New York are London and the San Francisco Bay area. The top 10 cities
for private equity employment account for nearly half of the global total, with Boston,
Chicago, Los Angeles, Dallas, Paris, Stockholm, and Tokyo rounding out the list.
Some of the most notable changes to the private equity hiring market are being
driven by the tactics of the mega-funds (those funds with several billion dollars in

Table 1.3

Evolution of the Buyout Market

1994

2006

2007

Number of LBO firms in existence

347

593

614

Number of LBO funds in existence

512

1,040

1,095

3,706

9,057

1,0398

Number of first-time LBO funds raised

27

38

44

Number of LBO funds raising money

110

179

206

LBO capital under management ($B)

113.6

636.5

729.7

Average LBO capital under management per firm ($M)

327.4

1,073.3

1,188.4

Average LBO fund size to date ($M)

199.7

442.7

473.9

Average LBO fund size raised ($M)

247.7

1,114.8

1,434.2

Number of professionals

Source: Thomson Financial’s Buyouts magazine

c01.indd 6

9/16/08 5:32:10 PM


Getting Started

7

assets under management). Over the past few years the number of mega-funds has
increased significantly, which means that as a group they have an even greater impact
on the hiring behavior and compensation structures of most other funds, regardless of
their size, geographic location, and/or the stage of a company in which they invest. By
virtue of their size the mega-funds need more junior investment professionals. Each
year they set the tone for hiring by beginning their annual recruiting earlier than
most other funds and offering higher compensation packages. Over the past few years,
hedge funds have also emerged as a force to be reckoned with. In spite of the recent
market turbulence, hedge funds have grown into an asset class that increasingly competes with private equity funds for top talent (we go into more detail about the effect
hedge funds have on the hiring market in Chapters III and IV).

PRIVATE EQUITY 101
Before initiating your job search, there are a few things about private equity with
which you should be thoroughly familiar. Even if you think you know the nuts and
bolts, this section could serve as a helpful brush-up on PE basics, including how various funds and roles differ. We also explain some basic hiring terms used throughout
this book.
While we want to avoid sounding like a textbook, we still think it is important to discuss the basics of what private equity funds are and how they are structured. The term private equity fund may sound like it would be a stand-alone
entity, but it usually is not. Even though someone may say they are an associate,
senior associate, or vice president working at Fund ABC, they really work for a
management company that has a fee agreement with Fund ABC. For example,
Chicago-based Madison Dearborn Partners, LLC is the management company
for five funds: the Madison Dearborn Capital Partners, L.P. (a $550 million fund
raised in 1992); the Madison Dearborn Capital Partners II, L.P. (a $925 million
fund raised in 1996), the Madison Dearborn Capital Partners III, L.P. (a $2.2 billion fund raised in 1999); the Madison Dearborn Capital Partners IV, L.P. (a $4
billion fund raised in 2000); and the Madison Dearborn Capital Partners V, L.P.
(a $6.5 billion investment fund raised in 2006).
Most private equity funds are set up as limited partnerships. As such, they have a
general partner (GP) in charge of making decisions for the partnership, and limited
partners (LPs) who are the investors in the fund. Typical LPs are institutional investors including public and private pension funds, endowments, other large financial

institutions, wealthy individuals, and the partners of the fund themselves.
The GPs make money two different ways: through an annual management fee paid
by LPs and a carried interest (called carry)—a percent of profit. The annual management fee is usually 1.5 to 2.5 percent of total capital commitments to the fund, while
the carry has historically been 20 percent of profits. You will often hear the term 2 and

c01.indd 7

9/16/08 5:32:11 PM


8 Getting a Job in Private Equity
20 to describe this fee structure. Under such a structure, a $1 billion fund would have
a 2 percent management fee and a 20 percent incentive fee. The management fee
alone will provide the fund with $20 million in fees each year to pay salaries and overhead. If the fund doubles over the course of its lifetime to $2 billion (a 100 percent
profit), the management company will reap $200 million based on an incentive fee
of 20 percent, with that sum split among the partners and anyone else with a piece of
the carry at the fund. A very select group of venture capital or leveraged buyout firms
can even take home 25 to 30 percent of profits.
Don’t get ahead of yourself here: If you join in a junior role you will not likely get
a large percentage of the carry, but some of the fund’s carry can filter down to you. If,
however, you stay on for several years, you can be in a position to build real wealth
as your percentage of the carry pool grows significantly (see Chapter XII for a more
detailed discussion on compensation).

Characteristics of Private Equity Investments
In its simplest form, a private equity investment is a privately negotiated transaction
involving an equity ownership stake. By their nature, private equity investments are
less correlated to the public equity markets and are thus less subject to stock market
cycles. Private equity funds offer the possibility of greater returns than investing in
public equities; however, the trade-off is that they are relatively less illiquid. So if

an investment in a fund is underperforming, it’s not easy to exit. Although many of
the large LBOs that have made headlines over the past several years were buyouts
of public companies (if a public company is taken over entirely it is said to be going
private), PE funds most often invest in private companies whose stock is not listed
on a public exchange.

What the Funds Do
Throughout your interview process you will be asked numerous times why you want
to work in private equity. The basis for your answer lies in understanding exactly what
funds do. A PE fund earns its money based on the appreciation of its equity ownership
stake in the operating companies in which it invests. Of course, not all investments
lead to profits. A typical $1 billion fund will make multiple investments, and while
some may only produce modest profits, a few big successes could be enough to provide
significant returns for the entire fund.
The vast majority of investment professionals’ time and effort at PE funds is spent
working on actual transactions, which includes finding, reviewing, evaluating, negotiating, and structuring deals. Once investments are made, many funds dedicate a significant amount of time to monitoring and adding value to portfolio companies before
exiting the investment. Generally, PE funds buy controlling or highly influential
interests in companies. This element of control/influence is an essential ingredient in

c01.indd 8

9/16/08 5:32:12 PM


Getting Started

9

firms’ ability to add value to their investments. Private equity firms add value in multiple ways:
• Provide capital and guidance in the form of financing strategies to grow the

company.
• Actively guide operational and business strategy.
• Help make add-on acquisitions to grow the company.
• Sell various (sometimes nonessential) parts of a business.
• Replace management and/or restructure operations if necessary.
The typical cycle for a PE fund is:
• Raise money from investors (LPs).
• Invest that money in companies that fit their strategy.
• Use a predetermined strategy to add value to those companies.
• Exit (sell) the investment.
• Split the profit with investors (LPs).

The Different Types of Funds
Knowing the various funds or investment types will help you understand the industry and determine where you want to work and, just as relevant, the best fit for
your skills. There are several types of private equity funds; the main characteristic
that distinguishes them is the stage of a company’s life at which a fund invests.
As stated earlier, this guide will focus primarily on mid- to later-stage PE, which
includes leveraged buyout (LBO) and growth equity funds. We also include a chapter on early-stage venture capital (VC) and private equity funds of funds. Some
firms may have multiple fund types. For example, Bain Capital has both venture
capital and LBO funds.

Buyout Funds
Leveraged buyout or simply buyout funds invest in more mature, later-stage companies that are almost always cash flow positive. As their name suggests, LBO funds purchase, or buy out, an entire company or a controlling interest in a corporation’s equity.
Leveraged buyouts are structured using a combination of debt and equity. The word leverage indicates that debt is used (as a lever) to enhance the fund’s equity investment,
allowing for a larger total purchase (and related larger financial return on the initial
equity). In a similar fashion, a mortgage allows for the purchase of a larger home than
would straight equity (a down payment). Table 1.4 lists the largest buyout funds ever
raised.
The universe of LBO funds is divided into multiple groupings mainly based on the
size of their funds (and thus the size of the deals in which they invest). We group

c01.indd 9

9/16/08 5:32:12 PM


10 Getting a Job in Private Equity

Table 1.4 Largest Global Buyout Funds Ever Raised

RANK

AMOUNT
($BILLION)

FUND NAME

FIRM NAME

LOCATION

YEAR

1

Blackstone Capital
Partners V LP

Blackstone Group

New York

2007

$21.70

2

GS Capital Partners VI
LP

GS Capital Partners

New York

2007

$20.30

3

KKR 2006 Fund LP*

Kohlberg Kravis
Roberts & Co.

New York

2006

$16.6

4

TPG Partners V LP

Texas Pacific Group
Inc.

Fort Worth,
Texas

2006

$15.0

5

Permira IV

Permira Advisers LLP

London

2006

$13.95**

6

Apax Europe VII LP

Apax Partners
Worldwide LLP

London

2007

13.82

7

Providence Equity
Partners VI LP

Providence Equity
Partners Inc.

Providence,
R.I.

2006

$12.1

8

Carlyle Partners V LP*

Carlyle Group LP

Washington

2007

$12.0

9

Thomas H. Lee Equity
Thomas H. Lee
Partners VI LP + Parallel Partners LP
Fund

Boston

2007

$10.1

10

Apollo Investment Fund
VI LP

Apollo Advisors LP

New York

2005

$10.0

11

Bain Capital IX LP +
Co-Investment Fund

Bain Capital Inc.

Boston

2006

$10.0

12

Bain Capital X LP*

Bain Capital Inc.

Boston

2007

$10.0

13

Silver Lake
Partners III LP

Silver Lake
Partners LLC

Menlo Park,
Calif.

2007

$9.0

14

Warburg Pincus Private
Equity X LP*

Warburg Pincus LLC

New York

2007

$9.0

15

GS Capital Partners

V LP

GS Capital
Partners Inc.

New York

2005

$8.5

Source: Private Equity Analyst
*Fund still open as of early 2008.
**Converted from euros using 2006 currency averages.

funds into five categories—small, small-mid, mid-sized, large and mega-funds. The
large and mega-funds (those with upwards of $2 billion or more in assets) typically
invest in multi-billion dollar transactions often through an auction process (run by
investment banks) and may do so in partnership with other large funds if the deal size

c01.indd 10

9/16/08 5:32:12 PM


Getting Started

11

warrants it. Middle-market funds (those with $2 billion or less) invest in smaller deals

and frequently look to source those through more proprietary means.
• Beyond the firms listed in Table 1.4, some other noteworthy firms that have mega
buyout funds are Cerberus Capital Management, Fortress Investment Group,
Hellman & Friedman, JC Flowers & Co., Leonard Green & Partners, Madison
Dearborn Partners, Thomas H. Lee Partners, and Sun Capital Partners.
• Examples of firms that have funds that are more mid-market focused are Aurora
Capital Group, Brazos Private Equity Partners, Brentwood Associates, Bruckmann
Rosser Sherrill, Catterton Partners, Centre Partners, Charlesbank Capital Partners, Gryphon Investors, Genstar Capital, H.I.G. Capital, KRG Capital Partners,
and Wind Point Partners.

Venture Capital Funds
Venture capital funds are very different from LBO funds, not only in how they invest,
but also how they hire, pay, and promote their investment professionals (we discuss
venture capital in more detail in Chapter VII). In brief, traditional early-stage venture capital funds invest in companies that are not yet profitable and, in fact, are often
cash flow negative, or “burning cash.” The companies often don’t have revenue and
may not even have a product yet.
Venture funds are looking for the next great product or company that will revolutionize a specific industry. They usually target industries within information
technology (including semiconductors, Internet, communications, and software),
health care (biotech, medical devices, and health care services), and increasingly
clean technology, with some funds targeting all three areas. For example, Kleiner
Perkins, one of the original backers of Google, invests in technology components,
systems and software, and health care. Kleiner Perkins also has a Greentech team
that invests in clean technologies.
• Some well-known firms with VC funds include Accel Partners, Battery Ventures,
Benchmark Capital, Bessemer Venture Partners, Charles River Ventures, Draper
Fisher Jurvetson, Greylock Partners, Kleiner Perkins, Mayfield Fund, Menlo
Ventures, New Enterprise Associates, Sequoia Capital, and Sutter Hill Ventures.

Growth Equity Funds
Whereas venture capital funds target early-stage companies and LBO funds seek out

more mature, profitable, and cash-producing businesses, growth equity funds invest
in companies that lie somewhere in between. Specifically, these companies are more
mature than those in which venture funds invest. Growth equity funds target companies that are usually profitable (and cash flow positive) or close to it. They generally
have proven business models but may need capital to continue to grow.

c01.indd 11

9/16/08 5:32:13 PM


12 Getting a Job in Private Equity
Transactions done by growth equity funds less frequently involve leverage, as many
of these growing businesses have yet to amass the assets and/or are not producing
enough cash against which to borrow. The transactions usually involve purchasing
significant ownership (but not necessarily full control) in portfolio companies.
• Some larger, well-known examples of firms with growth equity funds are General
Atlantic Partners, Spectrum Equity Investors, Summit Partners, and TA
Associates.

Fund of Funds/Hybrid Funds
Private equity fund of funds invest primarily in a selection of PE funds rather than directly
into operating companies (although many larger hybrid funds will frequently co-invest in
companies alongside private equity funds with which they have a relationship). Fund of
funds are a way for some investors, particularly smaller institutions, high-net-worth individuals, or family offices, to diversify their PE investment risk. By investing in dozens of
PE funds, a fund of funds could have indirect exposure to hundreds of companies.
Because the skills involved can differ in many aspects, working at a fund of funds
is usually not considered a stepping-stone to working at an LBO fund. (See Chapter
VIII for a more detailed discussion of fund of funds and a list of top fund of funds
managers.)
• Well-known managers of private equity fund of funds include Adams Street Partners, AlpInvest Partners, HarbourVest Partners, and Horsley Bridge Partners.

Secondary Funds
Secondary funds do not invest directly in businesses and/or do not involve traditional
equity investment. Rather, secondary funds primarily purchase part or all of an LP’s
interest in an existing fund. For example, pension fund A may have invested, or committed to invest, $50 million in LBO fund I two years ago and now decides that it
doesn’t want to be an investor in LBO fund I. Secondary fund X comes in and offers
pension fund A $35 million for its $50 million interest in LBO fund I. Pension fund A
sells its interest in LBO fund I with the consent of the PE fund.
The valuation that takes place in secondary funds is of portfolios of investments
and not so much individual companies. Therefore, as with fund of funds, it is also less
common for someone to move from a secondary to a traditional PE fund (see Chapter
VIII for a more detailed discussion of secondary funds).
• Firms that manage secondary funds include Lexington Partners, Landmark
Partners, Coller Capital, Pomona Capital, and Paul Capital.

Mezzanine Funds
Mezzanine funds invest in private debt (i.e., mezzanine debt) frequently as part of
LBO deals. The capital can come from private and/or public sources and can be used

c01.indd 12

9/16/08 5:32:13 PM